Income Tax Appellate Tribunal - Hyderabad
Acit, Circle-5(1), Hyd, Hyderabad vs Lalitha Karan, Hyd, Hyderabad on 4 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "A", HYDERABAD
BEFORE SHRI D. MANMOHAN, VICE PRESIDENT
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA No. 1130/Hyd/2015
Assessment Year: 2011-12
Asst. Commissioner of Income- vs. Lalitha Karan, Hyderabad.
tax, Circle - 5(1), Hyderabad.
PAN - ACTPK 0799E
(Appellant) (Respondent)
Revenue by : Shri A. Sitarama Rao
Assessee by : None
Date of hearing : 07-12-2016
Date of pronouncement : 04-01-2017
O RDE R
PER S. RIFAUR RAHMAN, A.M.:
This appeal filed by the Revenue is directed against the order of CIT(A)-4, Hyderabad, dated 08/06/2015 for AY 2011-12.
2. Briefly the facts of the case are that the assessee has filed her return of income for the AY 2011-12 on 18/10/2011 declaring income of Rs. 31,90,770/- including long term capital gains of Rs. 14,23,805/- on sale of property. The return of income was processed u/s 143(1) of the Income-tax Act. The case was selected for scrutiny and notice u/s 143(2) was issued, against which, the AR of the assessee produced the information called for. From the information submitted by the assessee, the AO noticed that the assessee had offered long term capital gains of Rs. 14,23,800/- on sale of immovable property at Colaba, Mumbai being 50% of her share. He observed that the property was shown to be sold at Rs. 39 lakhs and the assessee's share being 50% comes to Rs. 19,50,000/- and after deducting the 2 ITA No. 1130/H/15 Smt. Lalita Karan indexed cost and consideration paid to one Sri P.C. Srimal, the assessee had arrived at a net long term capital gain of Rs. 14,23,800/-. On perusal of the sale deed and other documents submitted by the assessee's counsel, the AO found that the stamp valuation authority has taken the market value of the property at Rs. 1,35,57,500/- for the purpose of levying of stamp duty. Accordingly, the AO was of the view that the case of the assessee attracts provisions of section 50C of the Act as per which he has to adopt the value adopted by the stamp valuation authority for the purpose of computation of capital gains.
2.1 The AO, therefore, issued a show cause notice dated 20/06/2013 to the assessee asking her explanation as to why the value of Rs. 1,35,57,500/- adopted by the stamp valuation authority for the purpose of levying stamp duty should not be adopted for the purpose of computation of capital gains as per section 50C of the Act. The AR of the assessee, inter-alia, submitted that the consideration received by her may be adopted as fair value of the property as the entire property was occupied by the tenants for over 60 years and litigation was pending over the same. She, therefore, objected for adoption of stamp duty valuation and requested that the same may be referred to the Departmental Valuation Officer (DVO) as per section 50C of the Act, for which, she relied on the decision of the Mumbai Tribunal in the case of Ms. Nandita Kosla [2011] 11 344 (Mumbai) and Hon'ble Mumbai High Court in the case of M/.s Bhatia Nagar Premises Cooperative Society Ltd. Vs. Union of India and others, [2010] 234 CTR (Bom) 175.
2.2 Referring to the provisions of section 50C(1), the AO observed that he is bound to adopt the value of the stamp valuation authority u/s 50C of the Act for the purpose of computation of capital gains and has no discretion of whatsoever in this matter and hence, the circumstances of sale of property explained by the assessee have no relevance to the adoption of valuation while applying the said section.
3 ITA No. 1130/H/15Smt. Lalita Karan He, further observed that the assessee's request for reference of the case to the DVO for valuation also cannot be accepted as the facts of the case laws cited by the assessee are not similar to the facts of this case as what is contested by the assessee in her case have no relevance to the facts stated in the case laws. In view of the above observations, the AO computed the long term capital gains in respect of the sale of property at Mumbai at Rs. 62,52,550/- as against Rs. 14,23,800/- returned by the assessee.
3. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A). The CIT(A) after considering the additional grounds raised by the assessee, observed that AO is bound to refer to the valuation if the assessee claims that the value adopted by the registration authorities does not represent correct market value. He further observed that the AO has brushed aside the assessee's objection holding that they are extraneous reasons. He observed that the reasons cited by the assessee for consideration being less than the value taken for registration purposes are valid and relevant and the action of the AO is not having the same into account while deciding the issue, does not appear to be correct. In view of the above observations, the CIT(A) held that the AO has not referred the matter to Valuation Officer as mandated u/s 50C and did not consider valid reasons put forward by the assessee for the actual consideration being less than the value adopted for registration purposes. He, therefore, concluded that the addition made by the AO is without following the due process of law and, hence, the same cannot be sustained and accordingly the addition is deleted by the CIT(A).
4. Aggrieved by the order of the CIT(A), the revenue is in appeal before us raising the following grounds of appeal:
"1. Whether the Ld. CIT(A) is correct on facts and circumstances in deleting the addition made by the AO by adopting the guide line value of the property for stamp duty purpose in place of stated consideration in the sale deed for the purpose of 4 ITA No. 1130/H/15 Smt. Lalita Karan computing long term capital gains on the ground that the Assessing Officer has not referred the matter to departmental valuation officer.
2. Whether the Ld. CIT(A) has erred on facts and circumstances holding that reference to departmental valuation officer u/s 50C(2)(a) is mandatory for Assessing Officer while determining value of the property as per the provisions of section 50C ignoring that the expression used is "may" and "shall".
3. Without prejudice to the above, the Ld. CIT(A) ought to have remanded the issue to the AO with a direction to refer valuation of the property to departmental valuation officer and decided the matter accordingly."
5. None appeared on behalf of the respondent-assessee at the time of hearing of this appeal. However, we proceed to decide the appeal after hearing the ld. DR and on merits of the case.
6. Ld. DR submitted that the CIT(A) ought to have remanded the issue to the file of the AO with a direction to refer valuation of the property to the Departmental Valuation Officer and decide the matter accordingly. He, therefore, pleaded that the matter may be remanded to the file of the AO.
7. We have carefully considered the submissions of the ld. DR and perused the material on record. We have also gone through the case law on this aspect. Before going into the facts of the case, it needs to be stated that the powers of CIT(A) are subject to section 250 of the Act whereby the CIT(A) has no power to set aside any issue even in a genuine case and, hence, the only option left to the CIT(A) is either to allow the appeal of the assessee after obtaining the remand report or to dismiss the appeal of the assessee. In the instant case, there is no dispute with regard to the fact that the assessee requested the AO to refer the matter to the DVO as per section 50C(2) of the IT Act. The assessee sold the tenanted property wherein she has 50% share; as per the assessee, net long term capital gain works out to Rs. 14,23,805/-; 50% of the property was stated to have been sold for only Rs. 19,50,000/-. It is the case of the assessee that it is tenanted 5 ITA No. 1130/H/15 Smt. Lalita Karan property, which does not fetch higher value and, therefore, while arriving at the Fair Market Value (FMV), that aspect has to be taken into consideration. It was brought to the notice of the AO that the property is under tenancy under the Maharashtra Rent Control Act; this issue is litigated upon and consequently, the property can be stated to have been subjected to certain encumbrances. But the AO has not addressed on this aspect. The assessee has also referred to the provisions of section 50C of the Act, which have to be mandatorily followed by the AO. However, the AO brushed aside the submissions of the assessee, while adopting the value, as mentioned by the stamp valuation authorities. In other words, the FMV of the property was not at all taken into consideration though a statutory duty is imposed upon the AO to obtain the value by referring the matter to DVO. In other words, he chose to brush aside the submissions, by not referring the matter to the DVO.
7.1 The issue that comes up for our consideration is as to whether the AO can be given a second opportunity to make good his deficiencies at the cost of expenditure to be incurred by the assessee by continuing the litigation for a further period, particularly, in view of the period of limitation prescribed u/s 153 of the Act. The Hon'ble Supreme Court in the case of Prashuram Pottery Works Co. Ltd. Vs. ITO, 106 ITR 1, observed that no litigation should continue beyond a period of time prescribed under the Act. Relevant observations of the Hon'ble Court are extracted below, for immediate reference:
"It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realizing that price should familiarize themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-6 ITA No. 1130/H/15
Smt. Lalita Karan judicial controversies as it must in other spheres of human activity."
Presumably bearing in mind the said principle, apart from the fact that the CIT(A) has no power to set aside the matter, he deleted the addition made by the AO for not exercising due diligence on his part i.e.; not following the mandatory provisions of section 50C(2) of the Act. The limited issue that arises for our consideration is as to whether the CIT(A) is justified in cancelling the addition made by the AO, in the peculiar circumstances of the case.
7.2 The Hon'ble Delhi High court in the case of ACC Ltd. Vs. DVO and others, [2013] 357 ITR 160 (Delhi) observed that in the event of not referring the matter to the DVO, the AO cannot said to be justified in proceeding with the valuation of the Sub-registrar. However, in the said case, the AO having made genuine attempt of referring the matter to the DVO and on account of the fact that the DVO had not completed his job of furnishing report within the due time, the AO was directed to reframe the assessment and in this backdrop the court, under extraordinary powers vested in the court under Article 227 of the Constitution of India, set aside the matter to the AO to obtain the valuation report and to complete the assessment accordingly.
7.3 Reverting to the facts on hand, the AO has not found any material to indicate that the assessee has received any excess money over and above what was declared by her. It is not known as to whether any similar addition was made in the hands of co-owner. At any rate, no material was placed before us on this aspect. When deeming provision was to be invoked, the same has to be construed strictly and it has to be taken to its logical conclusion i.e. upon not following the proper procedure prescribed therein, particularly, in the backdrop of the fact that the assessee has prima-facie shown that it was a tenanted property and, therefore, subjected to certain encumbrances and also the fact that in the absence of obtaining a DVO's report, assessee cannot be put to the trouble of facing a virtual 7 ITA No. 1130/H/15 Smt. Lalita Karan trial even after five years of appearing before the AO/DVO at this stage to prove that the sale price declared by her is reasonable.
7.4 As could be noticed from the order passed by the AO, assessee raised a specific plea that the tenants have not vacated the property even as on the date of sale of property and they had filed cases against their vacation. Literally, there were no purchasers for this litigated property and, hence, the property was sold at a rate lesser than the market value with a clause in the sale deed that the purchaser would deal with the tenants regarding their vacation etc. it was also stated that the property was fully occupied by seven tenants, who are in possession of their respective premises. Their names and the fact that they are paying a rent of only Rs. 450/- per month as on the date of sale have also been annexed to the sale deed. The sale deed also contains a clause that the property was sold under "as is where is" condition and the purchaser has agreed to acquire the same from the vendors on the same basis for a consideration of Rs. 39 lakhs. It was also explained that her father and grand father in their life time could not take possession of the property nor could get the tenants vacated. She being a lady residing at Hyderabad was neither able to look after the property or enjoy the same which forced her to sell the same in "as is where is" condition for a price whatever she could get. In spite of advertisement in the news papers, nobody came forward to purchase the property because of litigation. As there was a threat of property going away from her hands, she was forced to sell the same for whatever price she could get. By explaining in detail, it was stated that the property was occupied by tenants for over 60 years that litigation was pending and, thus, whatever she could obtain on sale should be treated as FMV of the said property, while, she also made a specific request to the AO to refer the matter to the DVO. She also objected for adoption of stamp duty valuation due to the above reasons. However, the AO was of the opinion that the factual difficulties of the assessee are of no relevance which is why stamp valuation authority has also adopted the market value of Rs.
8 ITA No. 1130/H/15Smt. Lalita Karan 1,35,57,500/-. Thus, he was of the view that section 50C is a mandatory provision and does not confer any discretion and he is bound to adopt the value adopted by the stamp valuation authority for the purpose of computation of capital gains.
7.5 There are catena of decisions on this point and, on other hand, referring to the speech of the Finance Minister as well as circular issued by the CBDT bringing the intention of the legislature whereby it was held that the AO is duty bound to refer the matter to the Valuation officer when the reasons were thoroughly mentioned by the assessee for the FMV that the assessee could fetch in these circumstances. Despite making request to refer the matter to the DVO, the AO purposely did not refer the matter to the DVO on the ground that he is duty bound to go by the valuation adopted by the stamp valuation authority.
7.6 Litigation in the Bombay, particularly, under the Maharashtra Rent Control Act, is well known and needs to be taken judicial notice. A property which is in the occupation of tenants for more than 60 years one cannot fetch full market value and in fact the party who purchased the property had agreed to the terms and conditions i.e. the property was purchased on "as is where is" condition with a specific clause that any further litigation will be dealt with by the purchaser and under those circumstances, generally, market value cannot be adopted. In these circumstances, the Courts time and gain held that reference u/s 50C(2) of the IT Act is mandatory and the AO having failed to follow the provisions of the Act, he should not be given one more chance to refer the matter to the DVO. Recently, the Hon'ble Supreme Court in the case of Manish Mahaeswari Vs. ACIT and another, and Indore Construction P. Ltd. Vs. CIT, [2007] 289 ITR 341 (SC) vis-à-vis the provisions of section 153C of the Act, observed that if the AO has not recorded his satisfaction for issue of notice u/s 153C of the Act, the proceedings deserve to be quashed rather than giving the AO another chance to record proper reasons. The same 9 ITA No. 1130/H/15 Smt. Lalita Karan principle holds good even in this case; when the AO has not followed the procedure prescribed in law, the addition made deserved to be deleted. Under these circumstances, in our considered view, the order of the CIT(A) in deleting the addition made by the AO, does not call for any interference. Accordingly, we uphold the order of the CIT(A) and dismiss the grounds raised by the revenue.
8. In the result, appeal of the revenue is dismissed.
Pronounced in the open court on 4 th January, 2017.
Sd/- Sd/-
(D. MANMOHAN) (S. RIFAUR RAHMAN)
VICE PRESIDENT ACCOUNTANT MEMBER
Hyderabad, Dated: 4 th January, 2017
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Copy to:-
1) ACIT, Circle - 5(1), 7 th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad.
2) Smt. Lalitha Karan, H. No. 4-5-313, Sultan Bazar, Hyderabad.
3) CIT(A) - 4, Hyderabad 4 CIT - 4 Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File